Investment in Private company that was bought out, 1099-B can't determine cost basis

Submitted by recycled_dnd t3_10q6aet in personalfinance

Hello, I was wondering how to allocate cost basis after my investment in a private company that was bought out paid out. I'll try to be active and respond to comments, let me know if you need more information.

Timeline:

July 2021 - Invest 10k into private company A.

April 2022 - Private company A is bought by public company B

buyout includes the following: $7.5k Cash, and $7.5k worth of public company B Stock

buyout includes clauses for potential yearly payouts based on performance of Company A products over the next 4-5 years.

Aug 2022 - Received small payment of ~$400 cash only

And now this week I've received my 1099-B for the sale which includes the 7.5k cash payout from April 22' and 400 cash from Aug 22', and it says under box 1E that they're unable to determine cost basis.

I don't really know what my options are, but I think they are as follows:

-allocate all 10k cost basis towards the 7.5k cash proceeds for this sale

-allocate all 10k cost basis towards the stock of public company B whenever I sell it

-allocate 5k cost basis towards the 7.5k cash proceeds and than allocate 5k cost basis towards the proceeds whenever I sell public Company B stock (not sure if I can do this)

Should I be waiting to determine cost basis and trying to divide it evenly among all payouts in 4-5 years from now when the rest of the potential payouts are done? (How would I report this on taxes?)

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Comments

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micha8st t1_j6o3aum wrote

I've never dealt with this with a private company, but I've dealt with this before.

Who's issuing the cash payments? I'm asking about the Aug 2022 payout.

5k / 5k sounds right, at first glance, but it's not clear where that 400 came from. It sounds like a cash dividend...but it should be reported on a 1099-DIV in that case. Unless they formed a partnership, and if that's what happened, you can expect a K-1 towards the end of March.

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micha8st t1_j6o5c9j wrote

my worst case for this sort of thing is AT&T. And it's really bad.

My grandparents bought AT&T before the breakup of Ma Bell.

I think they split off a few of their shares into an UGMA ostensibly to pay for my college.

I graduated college in the late 80s. I learned of the UGMA back in the mid-90s. Grandma decided it wasn't fair to give me all the money and my brother none, so it was split in half and then transferred to me.

At the time of the transfer, I received AT&T, BLS (one baby bell), Lucent, and a mutual fund that I think was used to capture dividends.

AT&T spun out AT&T wireless (AWE), which got bought out by BLS and SBC communications to form Cingular.

BLS bought AT&T.

Lucent spun out several companies, and what was left merged with Alcatel and then bought by Nokia.

Somehow I got ownership in Comcast as a result as well.

In many cases, I had to sell fractional shares as a result of different M&A activites.

at home I've got a big spreadsheet and one tab tracks where all the little pieces of AT&T went.

I've come to the conclusion that consistency is what is needed. THe big question in my mind is that $400.

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recycled_dnd OP t1_j6o5eur wrote

>Who's issuing the cash payments? I'm asking about the Aug 2022 payout.

A third party bank that handled the sale/merger called PNC Financial Services

>but it's not clear where that 400 came from.

Yeah the other person I know who was invested in the company doesn't know either. I still have the paperwork from the $400 payment and it just says:

"REMITTANCE DETAILS

This payment has been issued as as part of the transaction below:

Company B - Company A"

>Unless they formed a partnership

Company B bought Company A outright, their operations are being integrated into Company Bs and company A "no longer exists" it's employees were absorbed into Company Bs or terminated

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micha8st t1_j6o77pl wrote

I've been involved in two M&A where a public company was bought by another public company, and part of the deal was cash -- in both cases we got a cash lump they called a "special dividend" plus stock in the purchasing company.

One is my employer, so for privacy reasons I won't give you any info there.

The other is Terra Industries being bought by CF Industries. I can get back to you tonight with how I handled both of those. I think in both cases the guidance we received was that the cash dividend was treated as a dividend, and 100% of the basis in the little-fish ended up in the basis for the big-fish.

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recycled_dnd OP t1_j6o7qyn wrote

Thank you for your replies!

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Upset-North-2211 t1_j6o9xix wrote

I would split the investment into 2 chunks $5k each and use 1 chunk against the $7.5k cash payout. Hold the 2nd $5k as the cost basis of the received stock. The $400 payout is like a dividend, so cost basis is $0.

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micha8st t1_j6o5nml wrote

A thought... most public companies have an "Investor Services" webpage. Go there and see if they have a sub-page dealing with people holding stock in "company A."

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